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| ISCA > SEC Filings for ISCA > Form 10-K on 29-Jan-2009 | All Recent SEC Filings |
29-Jan-2009
Annual Report
Revenue Recognition. Advance ticket sales and event-related revenues for future
events are deferred until earned, which is generally once the events are
conducted. The recognition of event-related expenses is matched with the
recognition of event-related revenues.
NASCAR contracts directly with certain network providers for television rights
to the entire NASCAR Sprint Cup and Nationwide series schedules as well as the
NASCAR Craftsman Truck series schedule beginning in fiscal year 2007. Event
promoters share in the television rights fees in accordance with the provision
of the sanction agreement for each NASCAR Sprint Cup, Nationwide and Craftsman
Truck series event. Under the terms of this arrangement, NASCAR retains
10.0 percent of the gross broadcast rights fees allocated to each NASCAR Sprint
Cup, Nationwide and Craftsman Truck series event as a component of its sanction
fees and remits the remaining 90.0 percent to the event promoter. The event
promoter pays 25.0 percent of the gross broadcast rights fees allocated to the
event as part of awards to the competitors.
Our revenues from marketing partnerships are paid in accordance with negotiated
contracts, with the identities of partners and the terms of sponsorship changing
from time to time. Some of our marketing partnership agreements are for multiple
facilities and/or events and include multiple specified elements, such as
tickets, hospitality chalets, suites, display space and signage for each
included event. The allocation of such marketing partnership revenues between
the multiple elements, events and facilities is based on relative fair value.
The sponsorship revenue allocated to an event is recognized when the event is
conducted.
Revenues and related costs from the sale of merchandise to retail customers,
internet sales and direct sales to dealers are recognized at the time of sale.
Accounts Receivable. We regularly review the collectability of our accounts
receivable. An allowance for doubtful accounts is estimated based on historical
experience of write-offs and future expectations of conditions that might impact
the collectability of accounts.
Business Combinations. All business combinations are accounted for under the
purchase method. Whether net assets or common stock is acquired, fair values are
determined and assigned to the purchased assets and assumed liabilities of the
acquired entity. The excess of the cost of the acquisition over fair value of
the net assets acquired (including recognized intangibles) is recorded as
goodwill. Business combinations involving existing motorsports entertainment
facilities commonly result in a significant portion of the purchase price being
allocated to the fair value of the contract-based intangible asset associated
with long-term relationships manifest in the sanction agreements with
sanctioning bodies, such as NASCAR, Grand American and/or IRL. The continuity of
sanction agreements with these bodies has historically enabled the facility
operator to host motorsports events year after year. While individual sanction
agreements may be of terms as short as one year, a significant portion of the
purchase price in excess of the fair value of acquired tangible assets is
commonly paid to acquire anticipated future cash flows from events promoted
pursuant to these agreements which are expected to continue for the foreseeable
future and therefore, in accordance with SFAS No. 141, are recorded as
indefinite-lived intangible assets recognized apart from goodwill.
Capitalization and Depreciation Policies. Property and equipment are stated at
cost. Maintenance and repairs that neither materially add to the value of the
property nor appreciably prolong its life are charged to expense as incurred.
Depreciation and amortization for financial statement purposes are provided on a
straight-line basis over the estimated useful lives of the assets. When we
construct assets, we capitalize costs of the project, including, but not limited
to, certain pre-acquisition costs, permitting costs, fees paid to architects and
contractors, certain costs of our design and construction subsidiary, property
taxes and interest.
We must make estimates and assumptions when accounting for capital expenditures.
Whether an expenditure is considered an operating expense or a capital asset is
a matter of judgment. When constructing or purchasing assets, we must determine
whether existing assets are being replaced or otherwise impaired, which also is
a matter of judgment. Our depreciation expense for financial statement purposes
is highly dependent on the assumptions we make about our assets' estimated
useful lives. We determine the estimated useful lives based upon our experience
with similar assets, industry, legal and regulatory factors, and our
expectations of the usage of the asset. Whenever events or circumstances occur
which change the estimated useful life of an asset, we account for the change
prospectively.
Interest costs associated with major development and construction projects are
capitalized as part of the cost of the project. Interest is typically
capitalized on amounts expended using the weighted-average cost of our
outstanding borrowings, since we typically do not borrow funds directly related
to a development or construction project. We capitalize interest on a project
when development or construction activities begin and cease when such activities
are
substantially complete or are suspended for more than a brief period.
Impairment of Long-lived Assets, Goodwill and Other Intangible Assets. Our
consolidated balance sheets include significant amounts of long-lived assets,
goodwill and other intangible assets. Our intangible assets are comprised of
assets having finite useful lives, which are amortized over that period, and
goodwill and other non-amortizable intangible assets with indefinite useful
lives. Current accounting standards require testing these assets for impairment,
either upon the occurrence of an impairment indicator or annually, based on
assumptions regarding our future business outlook. While we continue to review
and analyze many factors that can impact our business prospects in the future,
our analyses are subjective and are based on conditions existing at, and trends
leading up to, the time the estimates and assumptions are made. Actual results
could differ materially from these estimates and assumptions. Our judgments with
regard to our future business prospects could impact whether or not an
impairment is deemed to have occurred, as well as the timing of the recognition
of such an impairment charge. Our equity method investees also perform such
tests for impairment of long-lived assets, goodwill and other intangible assets.
Self-Insurance Reserves. We use a combination of insurance and self-insurance
for a number of risks including general liability, workers' compensation,
vehicle liability and employee-related health care benefits. Liabilities
associated with the risks that we retain are estimated by considering various
historical trends and forward-looking assumptions related to costs, claim counts
and payments. The estimated accruals for these liabilities could be
significantly affected if future occurrences and claims differ from these
assumptions and historical trends.
Income Taxes. The tax law requires that certain items be included in our tax
return at different times than when these items are reflected in our
consolidated financial statements. Some of these differences are permanent, such
as expenses not deductible on our tax return. However, some differences reverse
over time, such as depreciation expense, and these temporary differences create
deferred tax assets and liabilities. Our estimates of deferred income taxes and
the significant items giving rise to deferred tax assets and liabilities reflect
our assessment of actual future taxes to be paid on items reflected in our
financial statements, giving consideration to both timing and probability of
realization. Actual income taxes could vary significantly from these estimates
due to future changes in income tax law or changes or adjustments resulting from
final review of our tax returns by taxing authorities, which could also
adversely impact our cash flow.
In the ordinary course of business, there are many transactions and calculations
where the ultimate tax outcome is uncertain. Accruals for uncertain tax
positions are provided for in accordance with the requirements of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." Under this
interpretation, we may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
50.0 percent likelihood of being realized upon the ultimate settlement. This
interpretation also provides guidance on de-recognition of income tax assets and
liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax
positions, and income tax disclosures. Judgment is required in assessing the
future tax consequences of events that have been recognized in our financial
statements or tax returns. Although we believe the estimates are reasonable, no
assurance can be given that the final outcome of these matters will not be
different than what is reflected in the historical income tax provisions and
accruals. Such differences could have a material impact on the income tax
provision and operating results in the period in which such determination is
made.
Derivative Instruments. From time to time, we utilize derivative instruments in
the form of interest rate swaps and locks to assist in managing our interest
rate risk. We do not enter into any interest rate swap or lock derivative
instruments for trading purposes. We account for the interest rate swaps and
locks in accordance with Statement of Financial Accounting Standard ("SFAS")
No. 133 "Accounting for Derivative Instruments and Hedging Activities," as
amended.
Contingent Liabilities. Our determination of the treatment of contingent
liabilities in the financial statements is based on our view of the expected
outcome of the applicable contingency. In the ordinary course of business we
consult with legal counsel on matters related to litigation and other experts
both within and outside our company. We accrue a liability if the likelihood of
an adverse outcome is probable and the amount of loss is reasonably estimable.
We disclose the matter but do not accrue a liability if either the likelihood of
an adverse outcome is only reasonably possible or an estimate of loss is not
determinable. Legal and other costs incurred in conjunction with loss
contingencies are expensed as incurred.
Acquisition and Divestitures
Raceway Associates
On February 2, 2007, we acquired the 62.5 percent ownership interested in
Raceway Associates, LLC ("Raceway Associates") we did not previously own,
bringing our ownership to 100.0 percent. Raceway Associates operates Chicagoland
Speedway ("Chicagoland") and Route 66 Raceway ("Route 66"). The purchase price
for the 62.5 percent ownership interest totaled approximately $111.1 million,
including approximately $102.4 million paid to the prior owners, the assumption
of third party liabilities and acquisition costs, net of cash received. The
purchase price was paid with cash on hand and approximately $65.0 million in
borrowings on our revolving credit facility. This transaction has been accounted
for as a business combination and is included in our consolidated operations
subsequent to the date of acquisition.
We believe that the Chicagoland and Route 66 acquisitions are well-positioned in
the nation's third largest media market with a strong motorsports fan base. The
purchase price for the Raceway Associates acquisition was allocated to the
assets acquired and liabilities assumed based on their fair market values at the
acquisition date. Included in this acquisition are certain indefinite-lived
intangible assets attributable to the sanction agreements in place at the time
of acquisition and goodwill.
Nazareth Speedway
After the completion of Nazareth Speedway's ("Nazareth") fiscal 2004 events we
suspended indefinitely its major motorsports event operations. The NASCAR
Nationwide Series and IRL IndyCar Series events, then conducted at Nazareth,
were realigned to other motorsports entertainment facilities within our
portfolio. The property on which the former Nazareth Speedway was located
continues to be marketed for sale. For all periods presented, the results of
operations of Nazareth are presented as discontinued operations.
Impairment of Long-Lived Assets
Northwest US Speedway Development
Since 2005, we had been pursuing development of a motorsports entertainment
facility in Kitsap County, Washington, which required State Legislation to help
finance the project. In early 2007 this legislation was introduced in both the
Washington State House of Representatives and Senate. On April 2, 2007, we
announced that despite agreeing to substantial changes to the required
legislation it had become apparent that additional modifications would be
proposed to the bill. Due to the increased risk that the collective
modifications would have a significant negative impact on the project's
financial model, we felt it was in our best long-term interest to discontinue
our efforts at the site. As a result, we recorded a non-cash pre-tax charge in
fiscal 2007 of approximately $5.9 million, or $0.07 per diluted share, to
reflect the write-off of certain capitalized costs including legal, consulting,
capitalized interest and other project-specific costs. The charge is included in
Impairment of Long-lived Assets in our consolidated statements of operations for
the year ended November 30, 2007. We still believe the Pacific Northwest
represents an attractive long-term opportunity, and remain interested in a
motorsports entertainment facility development project in the region.
New York Metropolitan Speedway Development
In September 2006 we ceased fill operations at our Staten Island real property
while we addressed the issues raised in communications from the New York State
Department of Environmental Conservation ("DEC") and the New York City
Department of Sanitation ("DOS"), including the presence of, and potential need
to remediate, fill containing constituents above regulatory thresholds. In
May 2007, we entered into a Consent Order with the DEC to resolve the issues
surrounding these fill operations and the prior placement of fill at the site
that contained constituents above regulatory thresholds. The Consent Order
required us to remove non-compliant fill pursuant to an approved comprehensive
fill removal plan. We completed fill removal activities in the second quarter of
fiscal 2008. The Consent Order also required us to pay a penalty to DEC of
$562,500, half of which was paid in May 2007 and the other half of which has
been suspended so long as we comply with the terms of the Consent Order.
Included in Impairment of Long-lived Assets in our consolidated statements of
operations at November 30, 2007 and 2008, is our estimated total costs,
including the portion of the penalty which has been paid, attributable to the
expected fill removal process of approximately $4.9 million, or $0.06 per
diluted share, and $1.5 million, or $0.02 per diluted share, respectively. The
property is currently marketed for sale and we have received interest from
multiple parties.
Although we are disappointed that our speedway development efforts were
unsuccessful on Staten Island, we still
have an interest in pursuing the development of a motorsports entertainment
facility in the region. Due to the considerable interest in and support for
NASCAR racing in the metro New York market, we believe a premier motorsports
entertainment facility will have a significant positive impact on the area's
economy and prove to be a long-term community asset.
Equity and Other Investments
Motorsports Authentics
In the fourth quarter of fiscal 2005 we partnered with Speedway Motorsports,
Inc. in a 50/50 joint venture, SMISC, LLC ("SMISC"), which, through its
wholly-owned subsidiary Motorsports Authentics, LLC conducts business under the
name Motorsports Authentics. During the fourth quarter of fiscal 2005 and the
first quarter of fiscal 2006, Motorsports Authentics acquired Team Caliber and
Action Performance, Inc., respectively, and became a leader in design,
promotion, marketing and distribution of motorsports licensed merchandise.
Subsequent to the acquisitions, Motorsports Authentics made significant progress
towards improving the acquired business operations and delivered a profit for
fiscal 2008 in a challenging economy. We continue to believe the sale of
licensed merchandise represents a significant opportunity in the sport and are
optimistic that Motorsports Authentics has a solid plan for the future.
In fiscal 2007, as a result of certain significant driver and team changes and
excess merchandise on-hand, Motorsports Authentics recognized a write-down of
certain inventory and related assets in the third quarter. In addition, during
the fourth quarter of fiscal 2007 Motorsports Authentics completed forward
looking strategic financial planning. The resulting financial projections were
utilized in its annual valuation analysis of goodwill, certain intangible assets
and other long-lived assets which resulted in an impairment charge on such
assets.
Our 50.0 percent portion of Motorsports Authentics' fiscal 2008 net income is
approximately $1.6 million, or $0.04 per diluted share and fiscal 2007 net loss
is approximately $57.0 million, or $1.04 per diluted share, which included the
aforementioned inventory and related asset write-down of approximately
$12.4 million, or $0.24 per diluted share, and impairment charges of
approximately $34.8 million, or $0.65 per diluted share, are included in Equity
in Net (Loss) Income From Equity Investments in our consolidated statements of
operations for the years ended November 30, 2008 and 2007, respectively.
Daytona Live! Development
In May 2007, we announced we had entered into a 50/50 joint venture (the
"DLJV"), with The Cordish Company ("Cordish"), one of the largest and most
respected developers in the country, to explore a potential mixed-use
entertainment destination development on 71 acres. The development named Daytona
Live! is located directly across International Speedway Boulevard from our
Daytona motorsports entertainment facility. The acreage that we currently own
includes an existing office building which houses our present corporate
headquarters and certain offices of NASCAR.
Preliminary conceptual designs call for a 200,000 square foot mixed-use
retail/dining/entertainment area as well as a movie theater with up to
2,500-seats, a residential component and a 160-room hotel. The initial
development will also include approximately 188,000 square feet of office space
to house the new headquarters of ISC, NASCAR, Grand American and their related
businesses, and additional space for other tenants. Construction of the office
building is underway and is expected to be complete by the fourth quarter of
2009. To date, Cobb Theaters has signed on to anchor Daytona Live! with a 65,000
square foot, 14 screen theater. The theater will feature digital projection with
3-D capabilities, stadium seating and a loge level providing 350 reserved
premium seats, and a full-service restaurant as well as in-seat service for food
and beverages.
Final design plans for the development of the retail/dining/entertainment and
hotel components are being completed and will incorporate the results of local
market studies and further project analysis. The DLJV is hopeful it will receive
all necessary permitting and other approvals for the initial development during
2009.
The current estimated cost for the initial development, which includes the new
headquarters office building and the retail/dining/entertainment, hotel and
residential components, is approximately $250.0 million. The new headquarters
office building was financed in July 2008 through a $51.3 million construction
term loan obtained by Daytona Beach Live! Headquarters Building, LLC ("DBLHB"),
a wholly owned subsidiary of the DLJV, which was created to own and operate the
office building once it is completed. Both ISC and Cordish anticipate
contributing equal amounts to the DLJV for the remaining equity necessary for
the project. We expect our contribution to range
between $10.0 million and $15.0 million, plus land we currently own. The balance
is expected to be funded primarily by private financing obtained by the DLJV.
Specific financing considerations for the DLJV are dependent on several factors,
including lease arrangements, availability of project financing and overall
market conditions. Lastly, when the new headquarters building is completed we
will relocate from our existing office building, which is not fully depreciated
and is expected be subsequently razed. During fiscal 2008 we recognized
$2.1 million, or, $0.03 per diluted share, respectively, of additional
depreciation on this existing office building. During fiscal 2007 we recognized
approximately $14.7 million, or $0.17 per diluted share on this existing office
building and certain other offices and buildings which were razed in fiscal
2007. We expect to recognize approximately $1.0 million, or $0.01 per diluted
share, of additional depreciation on the existing office building in fiscal
2009.
In accordance with the FASB Interpretation No. 46(R), "Consolidation of Variable
Interest Entities", we have determined that DBLHB is a variable interest entity
for which we are considered to be the primary beneficiary. As the primary
beneficiary we have consolidated this entity in our financial statements as of
November 30, 2008. As discussed above, in July 2008, DBLHB entered into a
construction term loan agreement to finance the headquarters building. The
construction loan agreement is collateralized by the underlying assets of DBLHB,
including cash and the real property of the new office building which have a
carrying value of approximately $54.5 million, at November 30, 2008, and are
included in the Restricted Cash, Long-Term Restricted Cash and Investments, and
Property and Equipment amounts included in the Consolidated Balance Sheets and
Minority Interest amount recorded on the Consolidated Statements of Operations.
As master tenant of the building we have entered into a 25-year lease
arrangement with DBLHB whereby such lease payments are consistent with the terms
of the construction term loan funding requirements. The headquarters building
financing is non-recourse to us and is secured by the lease between us and
DBLHB.
In addition, we have evaluated the existing arrangements of DLJV and its
remaining projects and have determined them to be variable interest entities as
of November 30, 2008. We are presently not considered to be the primary
beneficiary of these entities and accordingly have accounted for them as equity
investments in our financial statements at November 30, 2008. The maximum
exposure of loss to us, as a result of our involvement with the DLJV, is
approximately $2.9 million at November 30, 2008. We do not expect this
. . .
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